Financial rallies: What do they tell you about the market?
Rallies may seem like a time to make a bold move, but they are often more of a reflection of history than a premonition of the future. It is vital to pay close attention to the nuances of the market rally when deciding making financial decisions.
“When there is a rally in the financial markets, it is always important for an investor to understand why the rally is taking place,” said Timothy Reilly of Hilton Capital Management. “The current rally we are experiencing is a result of a change in stance by the Federal Reserve.”
The Reason For The Rally
Finance savvy investors know that rallies are largely due to capital entering the market in large sums. This surge leads to higher prices, which benefits companies and investors. When making financial decisions, it is important to know why that investment capital has appeared on the market.
Markets can be fickle. They are sometimes influenced by political action, news stories, press releases or new technological trends. The result of these types of activities are generally short-lived.
The rally may last a few days or a few months. Longer rallies often, though not always, occur after a long period of market stagnation. A low or flat market can lend itself well to investments.
Not Out Of The Woods
A market rally is not the key to financial freedom. A bear market rally is neither the end of a bear market nor a time to act abruptly for those with long-term investment strategies.
Likewise, a rally that is largely due to speculation may experience a correction at an average of about 13 percent. In short, while a rally is certainly positive, it is not a signal to relax when it comes to financial planning.
Wall Street vs. Main Street
There is often a disconnect between Wall Street and Main Street.
A financial rally may create an atmosphere that lends itself well to big business, but that doesn’t always translate into success for smaller entities. Indeed, a rally often makes those with large amounts of capital even wealthier, but they can be flat or even have a negative affect for Main Street entities.
This isn’t to say that it is not wise to invest in smaller companies or startups. An investment plan can and should be diversified.
Sometimes that diversification takes the form of investing in businesses of in multiple stages of development. An investment strategy that includes Main Street businesses must take into account that a financial rally doesn’t guarantee gains at all levels. It’s always wise to consult a financial advisor or wealth manager for advice on your investing objectives.
Managed Growth During Rallies
In most cases, the best investment strategies for most people are those that employ a slow and steady approach. Investing with the goal of making the fast cash that can appear when the market experiences an upswing is seldom sustainable.
A rash act during a financial rally is ill-advised. Instead, investors should weigh pros and cons prior to action. Even more important is to employ an investment manager who is transparent, experienced and has your best interests at heart.
Market rallies tend to generate confidence for consumers and investors alike. The best way to take advantage of a rally is to work with an investment manager who understands the long-term goals that are unique to each investor. Those who understand the minute details of finance are best suited to making the right decisions whether faced with a rally or a correction.